Honesty really is the best policy

Andreas Dracoulis outlines the details of the new Bribery Act, intended to stamp out on industry corruption. However, even the well intentioned in the industry could find themselves getting caught out

The passage of the Bribery Bill through to an act of parliament, receiving Royal Assent on 8 April 2010, heralds the beginning of a new regulatory regime in the UK. The Bribery Act was introduced to replace the old and fragmented legislation on bribery. Formally the law in relation to bribery comprised of three acts, collectively known as the Prevention of Corruption Acts 1889 to 1916, and the common law offence of bribing a public official.

The new Act is intended to provide a modern and consolidated bribery regime fit for use in the global market place and there was particular pressure for reform from the Organisation of Economic Co-operation and Development and also Transparency International. The manner in which the Act will come into force is still being decided though implementation in stages up to October 2010 is a possibility.

The Act creates four new offence; (i) offering, promising or giving of a bribe to another person; (ii) requesting, agreeing to receive or accepting of a bribe from another person; (iii) bribery of a foreign public official; and (iv) failure of commercial organisations to prevent bribery by “associated” persons - broadly defined as a person who performs services on behalf of the organisation.

The Act also has the appropriate teeth to match the legislation, with the penalty under the first three of these offences being up to 10 years imprisonment or an unlimited fine, while the maximum penalty for the last is an unlimited fine.

Zero tolerance
The Act has been left deliberately wide in its drafting in order to instil a zero tolerance culture. In particular, concerns have been raised that the first two offences (the general bribery offences) are so wide in their drafting that they may capture actions that would not normally be considered criminal.

The general bribery offences are founded upon the concept of a financial or other advantage that leads to “improper performance” of a relevant function or activity. Improper performance is triggered where a person breaches expectations (judged objectively based upon the views of a reasonable person in the UK) of good faith or impartiality or breaches a position of trust. There is no requirement for dishonesty or corruption and, crucially, there are also no exclusions for facilitation payments and nor for promotional or hospitality payments.

So consider, for example, the construction company that is bidding for a contract to supply a specialist plant. Such a company may wish to allow representatives of the organisation awarding the contract to inspect examples of its plant. Should the construction company pay for travel and/or accommodation, this could constitute an offence under the Act.

Senior officers of companies (including directors, managers, secretaries and so on) will also be caught where the general bribery offences (and also the third offence) have been committed by their company and with their “consent or connivance”, the meaning of which will no doubt be developed by the courts.

Bribery overseas
The general bribery offences apply not only where the bribe takes place in the UK, but also where the bribe takes place abroad and the person guilty of the offence has a “close connection” with the UK.

Offence three operates where a person offers, promises or gives (either directly or through a third party) any financial or other advantage to a foreign public official - defined widely to include certain public/state functions in territories outside of the UK. The intention of the person must be to influence the official in the performance of his/her functions and also to obtain or retain business or a business advantage. It is also a requirement that the written law of the official’s country does not permit nor require the official to be influenced in this manner.

Unlike the general bribery offences, this offence does not cover the receiving of bribes. The offence is of less relevance in the context of the domestic UK construction market, but companies with any visions of expansion beyond these shores must keep it mind.

The corporate offence
The fourth offence (the corporate offence) is a good example of how far the law in this area will be advanced by the Act. Whereas under the old regime it is necessary to show a “directing mind” within senior management at the commercial organisation, now all that is needed is to show that the commercial organisation has failed to prevent bribery: the commercial organisation will be guilty if the associated person bribes (which in this context means bribery under either offence one or three) another person intending to obtain or retain business or a business advantage.

The only defence available is for the commercial organisation to prove that it had “adequate procedures” in place to prevent associated persons from committing bribery. The Government will be issuing guidance as to what constitutes adequate procedures before the corporate offence is brought into force, though it is unclear when the guidance will be issued and in what level of detail the guidance will be set out.

The corporate offence also embraces the extraterritorial nature of the Act, so that not only does it apply to commercial organisations incorporated within the UK, but it will also apply to any commercial organisation carrying on a business or part of a business in the UK. It will also apply irrespective of whether the acts of bribery take place in the UK or elsewhere.

Impact on the industry
A bribe is said to occur when a “financial or other advantage” is given or received, the meaning of which is left by the Act to be determined as a matter of common sense by the courts. In the context of the construction industry, the Act will cover not just the obvious cases of bribery to secure a lucrative contract or to falsely increase or decrease a valuation, but also a wider scope of activities.

The potential impact on promotional and hospitality payments has been discussed above. Yet consider also the position of developers and contractors if they fail to prevent bribery by their appointed project advisers such as architects and project managers.

These project advisers fall in to the category of an associated person (they will be providing services after all); therefore if the developer or contractor cannot show that they have in place adequate preventative procedures
they will be liable for prosecution under the corporate offence.

The Government’s response to the concerns about the wide application of the Act has been to confirm that prosecuting bodies will have a degree of discretion in assessing cases. However, this is of little assistance to businesses operating within the construction industry who must now review their commercial practices or risk criminal prosecution.

As such businesses should adopt a pro-active strategy in tackling bribery and corruption. This could include certain practical steps including reviewing and implementing some or all of the following: codes of conduct; reporting and communication systems; training programmes; policies for commercial practices like hospitality; and other measures designed to encourage a corruption free environment. Businesses should also look carefully at the terms upon which any project advisers are appointed; this would be with a view to providing a defence to the corporate offence.

Make no mistake, the Act allows very few loopholes or exceptions. If businesses do not comply they face the very real possibility of large fines and the reputational damage that prosecution will bring.